Solar Costs Dropped 30% Over Last Decade

A new report published this week by the Lawrence Berkeley National Lab offers valuable insight culled from a decade’s worth of data into perhaps the most important metric in the PV industry: installed system costs before financial incentives. Because these incentives, like government tax rebates, can’t be counted on forever, installed costs — or the total cost of a PV system including panels, inverters, labor and more — will have to fall over time if the industry hopes to be a significant, long-term player in the U.S. energy mix.

The study, summarized in a 50-page document titled “Tracking the Sun II,” found that that the average installed cost in the U.S. has declined in the last decade (no surprise there), but the pace of that decline and other findings, such as the impact of economies of scale, might be surprising to some readers. Average U.S. installed system costs declined to $7.50 per watt in 2008 from $10.80 per watt in 1998, a 30 percent drop over the 10-year period, according to the report. That translates into a 3.6 percent, or 30 cents per watt, per year decline, on average, during that time.

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Importantly, the average cost dropped to $7.50 per watt in 2008 from $7.80 per watt in 2007 after three years (2005-2007) of little decline as the supplies for PV systems struggled to keep pace with expanding demand. Preliminary evidence suggests that prices will continue to fall this year, the report said. That drop in price from 2007 to 2008 is attributed largely to a reduction in panel costs, the report found, while the decline in installed costs from 1998 to 2005 was mostly because of savings from other system components like inverters, hardware, labor and overhead.

The study found that PV installed costs exhibit “significant economies of scale,” with systems less than 2 kilowatts in size averaging $9.20 per watt last year compared with systems between 500 kW and 750 kW averaging $6.50 per watt, a 30 percent difference. Economies of scale also have some effect on the varying installed costs across states. Systems less than 10 kW completed in 2008 ranged from a low of $7.30 per watt in Arizona (followed by California at $8.20 per watt) to a high of $9.90 per watt in Pennsylvania and Ohio. States with the largest PV markets tend to have lower average costs, the report found, suggesting that state and utility PV deployment policies can affect prices.

The study, a second in a series by the lab focused on describing trends in the installed cost of grid-connected PV systems in the U.S., also found:

Although there were few thin-film systems within the sample, PV systems with thin-film modules generally had lower average installed costs in 2008 than comparably sized crystalline systems ($1.50 per watt less among 10-100 kW systems and 60 cents per watt less among systems larger than 100 kW).

In 2008, the average net installed cost (that is after tax incentives) faced by PV system owners was $5.40 per watt for residential PV and $4.20 per watt for commercial PV. For both residential and commercial PV, average net installed costs rose slightly in 2007 and 2008, by 1 percent and 5 percent, respectively, as the annual decline in incentives outpaced the drop in installed costs.

Among 10-100 kW systems installed in 2008, systems with tracking had average installed costs 50 cents per watt, or 6 percent, higher than fixed-axis systems.

The new construction market offers cost advantages for residential PV. Among 1-3 kW residential systems funded through three California programs and installed in 2008, PV systems installed in residential new construction cost 80 cents per watt less than comparably sized residential retrofit systems (or $1.20 per watt less if focused exclusively on rack-mounted systems).